Credit Cards and Reluctant Regulators

Whether the office will pursue companies flouting the spirit or the letter of the new rules is an important question because consumers do not have a right in all cases to sue companies that violate the rules.

Related

Add to Portfolio

Such lawsuits can act as a governor on dubious behavior, but consumers and others can’t bring suits involving certain practices covered by the regulations. (Junk fees like those for submitting payments, for example, are among the areas where regulators alone may have policing power.)

Mr. Dugan continues to be in the big banks’ corner on other matters as well. As a member of the board of the Federal Deposit Insurance Corporation, he attended a meeting the F.D.I.C. convened last Tuesday to consider a rule that would allow it to examine executive compensation programs at banks as part of its risk-based assessment system.

At the public meeting, members of the F.D.I.C. staff detailed their reasons for considering the new rule. Among the arguments: risky compensation plans had been “a contributing factor” in recent bank failures, according to the F.D.I.C.’s inspector general.

The rule proposal passed the board of the F.D.I.C. with two dissents, one of them from Mr. Dugan. He said that it was “premature” for the F.D.I.C. to weigh in on executive pay at insured banks, adding that both Congress and the Federal Reserve Board were developing their own compensation guidance.

“It would be very unfortunate to have an end result where insured institutions and perhaps their holding companies were subject to inconsistent schemes evaluating the risk of their executive compensation programs,” he said at the meeting.

Sheila Bair, who heads the F.D.I.C., retorted: “To suggest this agency should not do anything when there is such an overwhelming amount of evidence that this is a clearly a contributor to the crisis and to losses we are suffering, I just cannot understand that.”

Make that two of us. And doesn’t the notion of waiting for the Fed or Congress to write rules on executive pay at banks sound an awful lot like the approach regulators took in the subprime lending arena?

Declaring that all agencies have to agree before any action can be taken is a time-honored way to ensure that nothing happens.

None of this is a surprise, mind you. But it does reinforce the need for a consumer protection agency that has the teeth to police financial institutions’ offerings. For years, consumer protection has been of little interest to the major financial regulatory agencies, with the exception of the F.D.I.C.

THERE is no reason to believe that this mind-set will change, given that the same folks who failed to rein in abusive practices years ago are still in place at these shops. And it is just plain boneheaded to entrust consumer protection to agencies run by people who seem to care more about the interests of the financial institutions they regulate.

Opponents of the Consumer Financial Protection Agency, which is part of the financial reform working its way through Congress, say that such a thing smacks of “the nanny state.” But isn’t that preferable to “the pirate state” that brought this economy to its knees?